Mortgage exit fees are on the way out!

Anyone who has closed a mortgage or switched lender in the past few years could be due compensation thanks to a ruling on so-called exit fees from the Financial Services Authority.

The City watchdog, has ruled against what it says are unjustifiable hikes in mortgage exit administration fees – the charge lenders impose for ending a mortgage deal.

Many of them have raised fees in recent years to hit back at "rate tarts" who switch companies to secure better deals. And the increases have gone way beyond inflation – Alliance & Leicester, for example, charged £7.50 15 years ago, but now charges £295.

If you have been hit by one of these charges, MoneyExpert.com can take you through the issues and show you how to get money back.

The chances of compensation are good

The FSA has not ruled against exit fees just because they are too high. What has attracted the attention of the FSA is that these charges have been raised after mortgages had been taken out.

After reviewing a range of mortgage deals, the FSA decided they did not explain exit fees properly.

The FSA says that only those hikes in fees that can be justified because of cost increases will be allowed. These costs cover administration expenses such as handling property deeds, sending them to solicitors and homeowners.

It challenged lenders to either cut their charges to what was originally stated in policyholders’ contracts or justify the increases by February 28th 2007.

The majority of lenders have backed down and some have even already set money aside for claims, so there is a good chance you are due compensation.

The fact that you will now no longer be a customer of the lender will make no difference – the FSA says you must be treated as if you are a current mortgage holder.

Negotiating the fees maze…

It is easy to get exit fees confused with early repayment fees. Early repayment fees are imposed for redeeming mortgages during lock-in periods: you may have been charged a fee for exiting the mortgage when you were enjoying a special discounted or fixed rate.

Nor should you confuse exit fees with other charges, such as application and set-up fees.

An exit fee is a charge imposed after any lock-in periods for closing the mortgage account, whether it be to switch to another lender or pay off the mortgage in total.

How do you make a claim?

First of all, get all the papers relating to your mortgage. Take a look at the exit fee you had to pay compared with the amount stated in your original contract.

If what you paid is higher, then you may well have a case. You can write to the lender saying you would like to have your case reviewed.

If you no longer have your paperwork, you can request it from your former lender, but you may have to pay a fee for doing so.

How much compensation can you expect?

The most you could receive is the difference between what your original contract stated you should pay and what you actually paid, possibly with a bit of interest.

For some though, this could still be a three-figure sum.

What if I am unhappy with the lender’s response?

If you are unhappy with the amount of compensation offered to you, then you can write to the Financial Ombudsman’s Service to take your case further.

But because the FSA has warned lenders they need to sort this problem, the chances are you will be paid.

Look at the true cost

The FSA ruling is welcome because it will force lenders to be open and fair with borrowers with regards to exit fees. You will have a much better idea of where you stand and lenders won’t be able to hike fees without telling you.

However, do make sure that whenever you take out a mortgage you look at exit fees and other charges. If you do like to switch mortgages frequently to secure optimum interest rates, then the exit fee will be particularly relevant to you in working out the true cost of your mortgage. To find the right deal for you, click through on the Mortgage button on MoneyExpert.com.

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